DO NOWDO NOW

Answer the following questions in Answer the following questions in bullet/outline format:bullet/outline format:• What is an implication?What is an implication?• Why does answering this unit question Why does answering this unit question

matter?matter?• What is so special about inventions What is so special about inventions

anyway?anyway?

ReadingReading

As you read the following article, As you read the following article, circle/highlight/underline reasons circle/highlight/underline reasons why technology/innovations are why technology/innovations are important.important.

Economics and Economics and Inventions Inventions

Perfect Together!Perfect Together!

Why bother with Economics!Why bother with Economics! It’s fun!It’s fun! It’s scary!It’s scary! It joins math, science, lang lit, and social It joins math, science, lang lit, and social

studiesstudies• Andrew Fitz will love this! Probably Emma too!Andrew Fitz will love this! Probably Emma too!

Linear and Abstract Thinkers are home in Linear and Abstract Thinkers are home in econ!econ!

It effects your life, in everyday, in every It effects your life, in everyday, in every way!way!

Plus, if you don’t consider it, you’ll be at a Plus, if you don’t consider it, you’ll be at a disadvantage.disadvantage.

GDPGDP

GDP: Gross Domestic ProductGDP: Gross Domestic Product• The value of the final goods produced in The value of the final goods produced in

one country during a given time (usually one country during a given time (usually 1 year).1 year).

Final goods- finished, completed goodsFinal goods- finished, completed goods• Examples: cards, houses, desk, car Examples: cards, houses, desk, car

Intermediate goods- materials in Intermediate goods- materials in construction of final goodconstruction of final good

• Examples: steel, wood Examples: steel, wood

Per Worker Production FunctionPer Worker Production Function

Relationship between Relationship between • GDP per hour worked GDP per hour worked • AndAnd• Capital (workers, inventories- all the Capital (workers, inventories- all the

stuff in a factory/business clothes, stuff in a factory/business clothes, shoes, golf balls, machines etc.-, shoes, golf balls, machines etc.-, factories) factories)

Mathematically SpeakingMathematically Speaking

Per worker production functionPer worker production function• Y = A f(K,L)Y = A f(K,L)

Y = output (GDP)Y = output (GDP) A= technologyA= technology K (Capital (factories, workers, K (Capital (factories, workers, inventory)inventory)

L (labor)L (labor)

Y= A f(K, L)Y= A f(K, L)

Increase anything on the right side = Increase anything on the right side = increase of output (GDP)increase of output (GDP)

A is extremely important, A is extremely important, multiplication effect (shifts the curve)multiplication effect (shifts the curve)

K and L- changes on the curve K and L- changes on the curve

Let’s see some graphs…Let’s see some graphs…

Why is the line curved?Why is the line curved?

Law of diminishing returns- increases Law of diminishing returns- increases in labor or capital lead to smaller in labor or capital lead to smaller increases in productivity increases in productivity

Scenario 1Scenario 1

Soviet Union (1950s-1980s)Soviet Union (1950s-1980s)• Made many more factoriesMade many more factories• Forced people (almost everyone) to Forced people (almost everyone) to

workwork What do you expect to happen? What do you expect to happen?

Why?Why?

Scenario 2Scenario 2

United States of America (1950s-United States of America (1950s-1980s)1980s)• Amount of people working increases Amount of people working increases

slowlyslowly• Number of machines increases slowlyNumber of machines increases slowly• Technological advancement occurs Technological advancement occurs

Example: invention of computer Example: invention of computer What do you expect to happen? What do you expect to happen?

Why?Why?

DO NOWDO NOW

Answer the following question Answer the following question in bullet/outline format?in bullet/outline format?• What is the relationship between What is the relationship between

inventions and a prospering inventions and a prospering economy?economy?

What do you need in order for What do you need in order for inventions to happen…inventions to happen…

Rule of LawRule of Law• Stable societyStable society• Patent laws- protect people’s ideasPatent laws- protect people’s ideas

Investments- subsidize (give money) Investments- subsidize (give money) to research and development to research and development

Subsidize (give money) to education Subsidize (give money) to education

Just in case you didn’t bring your Just in case you didn’t bring your “A” game today…“A” game today…

In the long run, a country will In the long run, a country will experience an increasing standard of experience an increasing standard of living only if it experiences living only if it experiences continuing technical change.continuing technical change.

ClosureClosure

What is the per worker production What is the per worker production function?function?

What is the law of diminishing What is the law of diminishing returns?returns?

If I increase the amount of people If I increase the amount of people working in my factory, how will the working in my factory, how will the graph change?graph change?

If I invent the internet, how will my If I invent the internet, how will my graph change?graph change?

ClosureClosure

What do you need to keep What do you need to keep technological advancement technological advancement occurring?occurring?

Why did the Soviet Union fail?Why did the Soviet Union fail? Why did the US’s economy grow by Why did the US’s economy grow by

leaps and bounds?leaps and bounds? Why is the line on the graph curved?Why is the line on the graph curved?